A Quantitative Analysis of Tariffs Across U.S. States

Posted: 2 Jun 2021

See all articles by Ana Maria Santacreu

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Michael Sposi

Southern Methodist University (SMU)

Jing Zhang

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: May, 2021

Abstract

We develop a quantitative framework to assess the cross-state implications of a U.S. trade policy change: a unilateral increase in the import tariff from 2 to 25 across all goods-producing sectors. Although the U.S. gains overall from the tariff increase, we find the impact differs starkly across locations. Changes in real consumption (welfare) range from as high as 3.8% in Wyoming to $-0.3% in Florida, depending mainly on how exposed states are to differentially-impacted sectors. As a result, the "preferred'' tariff rate varies greatly across states. Foreign retaliation in trade policy substantially reduces the welfare gains across states, while perpetuating the cross-state variation in those gains. The presence of internal trade frictions amplifies the welfare impacts of changes in trade policy.

JEL Classification: F11, F62

Suggested Citation

Santacreu, Ana Maria Maria and Sposi, Michael and Zhang, Jing, A Quantitative Analysis of Tariffs Across U.S. States (May, 2021). FRB St. Louis Working Paper No. 2021-7, Available at SSRN: https://ssrn.com/abstract=3855943 or http://dx.doi.org/10.20955/wp.2021.007

Ana Maria Maria Santacreu (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Michael Sposi

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Jing Zhang

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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